Thank You

Error.

There was good news Friday, following a pow-wow between President Obama and leaders of the House and the Senate: All four of the legislators predicted that a budget agreement will be reached by year end, averting a plunge off the ''fiscal cliff." A week ago, we seemed to be tottering on the brink. A quickie law will be passed delaying the detonation of the Budget Control Act of 2011, which calls for steep spending cuts, beginning in January. This, plus a delay in automatic tax increases, would keep us from going over the cliff. Look for a detailed list of goals for revenue gains and spending cuts to be announced before Christmas -- with the actual butcher's bill passed early next year by the new Congress.

House Speaker John Boehner Friday said he would agree to higher revenue in return for significant spending cuts. The Senate minority leader, Republican Mitch McConnell, said the cuts must include entitlement reform that fits a changing America. Surprisingly, neither the House minority leader, Democrat Nancy Pelosi nor the Senate majority leader, Democrat Harry Reid, objected. "I feel very good," said Reid, adding that the group had laid the cornerstone for a deal. Pelosi, bless her soul, said she wants to send a soothing message to consumers and the markets. She said this could be done in the short term by reaching an agreement on budgetary goals and a hard deadline for achieving them, and with measures of success along the way to build investors' confidence.

Steve McBee of McBee Strategic Insight, a well-connected Washington lobbying firm, told me he expects a final deal of $2 trillion in deficit reduction over 10 years, enough to calm, if not thrill, the markets. The starting point will be a much more ambitious $4 trillion proposal, he vaticinates. Brace for plenty of market volatility during the negotiations, he warns.

FRIDAY'S NEWS isn't reason enough for a renewed running of Wall Street's bulls. If you try to get out in front of all the happy talk, you likely will be gored. The recent selloff was not a panic attack. Savvy investors realize that even if the lawmakers do manage to stop hammering one another long enough to hammer out a grand bargain, the details will be inimical to certain classes of investors. For example, those in the higher brackets might be taxed on some income from municipal bonds. This proposal currently is on the table. And tax rates on dividends and capital gains certainly will rise. This is a given.

Obama is under huge pressure from unions and AARP not to lay a finger on entitlements. This accounts for the hard line on taxes he took at his press conference last week. Democrats can't afford to alienate those groups; they need their deep pockets for future elections. Obama needs time to persuade them that he will embrace only entitlement reforms that protect their interests. However, the president isn't fool enough to be so uncompromising on entitlements that he forces the GOP to walk away from a deal. Going off the cliff would end his presidency, for all practical purposes. Gabe Horwitz, economic director for Third Way, a centrist Democratic Think Tank in Washington, says that Obama has a list of ambitious priorities -- things like energy, infrastructure, and education -- all of which must wait until the fiscal-cliff problem is solved.

So investors should be hopeful, but not act impulsively. Look at what the pols do, instead of listening to what they say. And wait for some of Pelosi's "measures of success" to materialize before making any decisions.